Re­naud La­planche started Lend­ing­club in 2006 and soon emerged as a lead­ing voice for what sounded like a rad­i­cal new move­ment. With peer-to-peer fi­nance, peo­ple want­ing to bor­row money and peo­ple want­ing to lend it could be matched up via a web­site like Lend­ing­club’s. The com­pany would vet bor­row­ers with its com­puter mod­els and col­lect a fee for the ser­vice. Never mind go­ing to a bank, or to Wall Street.

By the time Lend­ing­club went public in De­cem­ber 2014, it was look­ing more pin­striped. John Mack, for­mer chair­man of Morgan Stan­ley, was on the board of di­rec­tors and stood on the New York Stock Ex­change dais with La­planche for the ring­ing of the open­ing bell. In­creas­ingly, the fun­ders of many Lend­ing­club loans weren’t in­di­vid­u­als, but money man­agers, in­vest­ment funds, and banks. The term “peer-to-peer” even­tu­ally fell out of fa­vor in the in­dus­try, re­placed with “mar­ket­place lend­ing.”

Ties to Wall Street may have been es­sen­tial to the com­pany’s growth— but La­planche’s man­age­ment of those re­la­tion­ships now has him out of a job. Lend­ing­club’s share price is down more than 40 per­cent since his ouster was an­nounced on May 9, and the com­pany says in­vestors who pro­vided “a sig­nif­i­cant amount of fund­ing” for loans have set their debt pur­chases on pause. The com­pany has been sub­poe­naed by the U.S. Department of Jus­tice, and the Se­cu­ri­ties and Ex­change Com­mis­sion is ex­am­in­ing what hap­pened.

Lend­ing­club’s board asked La­planche to leave af­ter ques­tion­ing $3 mil­lion in mis­dated loans that were sold in a bun­dle to an in­vest­ment bank. The com­pany also said La­planche failed to prop­erly dis­close his in­ter­ests in an out­side fund be­fore Lend­ing­club in­vested $10 mil­lion in it. That fund’s in­vestors in­cluded Mack, who re­mains on the Lend­ing­club board and hasn’t been ac­cused of im­pro­pri­ety. He de­clined to com­ment.

Al­though these were rel­a­tively small is­sues in dol­lar terms, they spi­raled into a break­down of trust be­tween La­planche and his board, say peo­ple fa­mil­iar with the talks. “Trust is a core part of their busi­ness, es­pe­cially for a new in­dus­try like this,” says Michael Tarkan, an an­a­lyst at Com­pass Point Re­search & Trad­ing, speak­ing gen­er­ally of peer-to-peer fi­nance.

Ten­sions had been sim­mer­ing at the com­pany. In re­cent months, tur­bu­lence in cap­i­tal mar­kets had prompted in­vestors to cool on In­ter­net loans like those of Lend­ing­club, says a per­son fa­mil­iar with the mat­ter. La­planche be­gan pur­su­ing fund­ing sources he’d shunned, this per­son says. The CEO had long re­sisted bundling Lend­ing­club’s con­sumer debts into se­cu­ri­ties, but the com­pany re­cently re­versed course, work­ing with Goldman Sachs and Jefferies on bond deals.

No bonds have been is­sued. Not long af­ter that process be­gan, things went wrong. An em­ployee changed dates on $3 mil­lion in loans in re­sponse to a re­quest from Matt Wier­man, a Lend­ing­club se­nior vice pres­i­dent, ac­cord­ing to one per­son close to the com­pany who also says the em­ployee later brought up the de­ci­sion with La­planche. Wier­man has told col­leagues he was mis­un­der­stood, the Wall Street Journal re­ported. He did not re­spond to mes­sages seek­ing com­ment.

The loans were sold to Jefferies. They were among $22 mil­lion in loans a Lend­ing­club in­ter­nal in­quiry later found didn’t meet Jefferies’s cri­te­ria. Lend­ing­club said on May 9 that it bought back all those loans and sold them to an­other in­vestor.

Sep­a­rately, the board had been look­ing into an­other mat­ter. Ear­lier this year, La­planche asked the board’s risk com­mit­tee to spend the com­pany’s money on a stake in Cir­rix Cap­i­tal, a fund that spe­cial­ized in buy­ing loans from Lend­ing­club, ac­cord­ing to the peo­ple fa­mil­iar with the mat­ter. Cir­rix could bol­ster fund­ing for loans if other sources tem­po­rar­ily dried up. La­planche ul­ti­mately wrote up the idea and got ap­proval. But he left some­thing out: He had a per­sonal stake in Cir­rix.

An­drew Hal­low­ell, a man­ag­ing di­rec­tor of Cir­rix, didn’t re­spond to mes­sages seek­ing com­ment. La­planche didn’t stand to ben­e­fit from Lend­ing­club’s in­vest­ment with Cir­rix, says one per­son with knowl­edge of the event.

Lend­ing­club later dis­closed La­planche’s hold­ing to in­vestors in reg­u­la­tory fil­ings. It also said that Mack held a per­sonal stake in Cir­rix. Mack wasn’t in­volved in the risk com­mit­tee’s de­ci­sion to in­vest in the fund.

Mack joined Lend­ing­club’s board in 2012 and in­vested $2.5 mil­lion that year. He be­came a public booster of the idea of buy­ing Lend­ing­club loans. “Fi­nan­cial ad­vis­ers are fas­ci­nated by this busi­ness and its re­turns,” he told CNN Money in 2012. “I wouldn’t be sur­prised if some start putting $10 mil­lion to $15 mil­lion in this.”

Be­fore long, Mack, who’d re­tired as Morgan Stan­ley’s chair­man, was help­ing Lend­ing­club ac­cess key sources of fund­ing via cus­tomers of Morgan Stan­ley’s pri­vate-client ser­vices group, ef­forts he de­scribed to Bloomberg in 2013. Morgan Stan­ley bro­kers be­gan of­fer­ing clients a chance to in­vest in port­fo­lios of loans cre­ated by a Lend­ing­club sub­sidiary, LC Ad­vi­sors, says a per­son fa­mil­iar with the mat­ter. Morgan Stan­ley’s pri­vate-bank­ing clients prob­a­bly ac­count for less than 1 per­cent of all of Lend­ing­club’s out­stand­ing loans, a spokesman for Lend­ing­club says, while de­clin­ing to give fig­ures for LC Ad­vi­sors.

La­planche said in a state­ment to Bloomberg that he dis­agreed with the board’s “char­ac­ter­i­za­tion of facts,” but rec­og­nized “that events oc­curred on my watch where we failed to meet our high stan­dards.”

Lend­ing­club’s trou­bles are af­fect­ing com­peti­tors. With Wall Street ner­vous about peer-to-peer, Pros­per Mar­ket­place, the com­pany’s largest ri­val, has met with in­vestors in­clud­ing Fortress In­vest­ment Group about po­ten­tial cap­i­tal in­jec­tions, a per­son with knowl­edge of the mat­ter says.

Robert Wal­drop, ex­ec­u­tive di­rec­tor of the Cam­bridge Cen­tre for Al­ter­na­tive Fi­nance, says “many peo­ple ex­pected the wheels to come off” a peer-to-peer player at some point. “The big sur­prise, clearly,” he says, “was that this was an event that hap­pened at a top per­former.” �Noah Buha­yar, Hugh Son, and Dakin Camp­bell, with Jenny Su­rane, Laura J. Keller, and Matt Scully The bot­tom line The ouster of Lend­ing­club’s CEO un­der­scores the grow­ing ties be­tween peer-topeer fi­nance and tra­di­tional Wall Street.